Supreme Court Rules: No GST on Leasing Residential Properties for Student Hostels

The Supreme Court of India has recently delivered a landmark judgment, ruling that leasing residential properties for student and professional hostels is exempt from Goods and Services Tax (GST). By upholding the Karnataka High Court’s decision, the apex court has reinforced the principle that residential use exemptions must be preserved in line with legislative intent. This ruling provides much-needed clarity for property owners, co-living operators, and students across the country.

Background of the Case

The case originated in Bengaluru, where a co-owner of a 42-room residential property leased it to M/s D Twelve Spaces Private Limited, which operated the property as a hostel. The lease accommodated students and working professionals for periods ranging from three to twelve months. The petitioner sought clarification on whether the renting services provided would qualify for exemption from GST.

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The GST Issue at Hand

The central question was whether GST on leasing out residential premises applies when the property is used as a hostel. While residential premises are generally exempt from GST, ambiguity arose because the lessee ran a commercial operation. The petitioner approached the Authority for Advance Ruling (AAR) in Karnataka to determine the tax applicability.

What the AAR and AAAR Held

The AAR initially ruled that since the hostel functioned as a business, it could not be considered residential accommodation. The Appellate Authority for Advance Ruling (AAAR) upheld this view, asserting that the property was being used for commercial purposes and therefore GST exemption did not apply. These decisions created confusion for property owners leasing to student and professional hostels.

Karnataka High Court’s Decision

The Karnataka High Court overturned the AAR and AAAR rulings. The court observed that although the lessee managed the property commercially, the ultimate use of the property remained residential. The HC clarified that providing long-term accommodation to students and professionals does not convert a residential dwelling into a commercial property for GST purposes.

Supreme Court’s Final Ruling

The Supreme Court bench, comprising Justices JB Pardiwala and KV Viswanathan, upheld the Karnataka High Court’s judgment. The apex court emphasized that levying GST on such transactions would defeat the legislative intent behind the residential use exemption. It highlighted that long-term residential occupancy remains the key determinant for GST applicability, irrespective of the lessee’s business model.

Why This Ruling Matters

This judgment provides significant relief for landlords leasing residential premises for hostels and co-living accommodations. By exempting such leases from GST, the ruling ensures that the financial burden does not fall on students and working professionals. Additionally, the decision promotes investment in student housing and co-living sectors, as property owners can confidently lease without worrying about GST implications.

Understanding Residential Use Under GST

According to this clarification:

• Residential premises rented for long-term stays (3–12 months) are considered residential, not commercial
• Hostels, co-living spaces, and PG accommodations offering similar residential services are exempt from GST.
• The nature of the lessee’s business does not override the residential purpose of the property.

This guidance now serves as a benchmark for future cases involving GST on leasing out residential premises.

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Impact on Real Estate and Student Housing Market

The Supreme Court’s ruling is expected to encourage more property owners to lease residential properties for hostel and co-living purposes. It reduces operational costs for accommodation providers and ensures affordability for students and professionals. Education hubs and cities with high student populations stand to benefit as more quality accommodation becomes available at competitive rates.

Conclusion

In a crucial clarification for landlords, students, and co-living operators, the Supreme Court has confirmed that GST on leasing out residential premises does not apply when the property is used as a hostel. This decision preserves the intent of residential exemptions, supports the growth of student housing, and boosts investor confidence in India’s rental housing ecosystem.

By distinguishing residential use from commercial exploitation, the ruling sets a clear precedent for similar leasing arrangements across the country, ensuring both legal clarity and economic benefit for all stakeholders.